Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. Join them; it only takes a minute:

Sign up
Here's how it works:
  1. Anybody can ask a question
  2. Anybody can answer
  3. The best answers are voted up and rise to the top

Suppose I want to compute the time value of money (present value, future value, etc). I need to put an interest rate into the calculation.

Which real world interest rate would best be used here, assuming that I'm concerned with US securities?

Should I use the Fed Funds rate? Should I use the T-bill/bond rates? If so, which period T-bill/bond rates should I use? Should I use the short-term interest rate or long-term interest rate?

share|improve this question
up vote 5 down vote accepted

You should use the full yield curve, discounting cash flows at specific dates using the appropriate zero-coupon interest rate. As to which yield curve, that is often a matter of convention. Generally one uses the LIBOR/swaps curve for all but the most liquid products (in which case you use the treasury curve). The curve is constructed from LIBOR/Eurodollar futures at the short end and swaps at the long end.

share|improve this answer
yes, that's the way to go. – SRKX Dec 28 '11 at 16:25

Depends on circumstances - if you just trade futures intraday for yourself, secondary market T-bills (http://www.federalreserve.gov/releases/h15/data.htm#fn3) will be good enough.

share|improve this answer

Your Answer


By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.